U.S. gross domestic product (GDP) shot up at an 8.2-percent annual rate
in the third quarter of 2003, according to the Bureau of Economic Analysis
(BEA). U.S. industries were powered by increased business spending, and
especially the strong consumer spending the Bush Administration was anticipating
would flow from its second round of tax rebate checks earlier in the
In addition, a deceleration in imports, an upturn in exports, and acceleration
in residential fixed investment fueled growth, the BEA said. The uptick
was the largest single-quarter jump since 1984, and it came on the heels
of a 3.3-percent annualized GDP increase in the second quarter.
Economic activity grew for the fifth straight month in November 2003,
the latest month for which statistics were available, according to the
Institute for Supply Management's (ISM) Report on Business. In addition,
manufacturers enjoyed higher prices for the 21st consecutive month.
"Based on this data, it appears that the recovery is gaining momentum," said
Norbert J. Ore, chair of the ISM's Manufacturing Business Survey Committee,
in a release. "Indications are that the manufacturing sector is ending
2003 on a very positive note, and all of the indexes support continued
strength in 2004."
The U.S. reports have injected brighter hope into economies worldwide,
according to the Organization for Economic Cooperation and Development
(OECD). "After a drawn-out period of fits and starts, a palpable recovery
has finally taken hold," said OECD Chief Economist Jean-Philippe Cotis
in his Nov. 20, 2003 executive overview. "The American upswing has coincided
with a marked and better-than-expected improvement in Japan, driven in
large part by better investment prospects in the manufacturing sector
and fast-growing markets in neighboring Asian economies.
"Looking further ahead, the most likely scenario for the next 2 years
is one of sustained growth in the United States and progressive recovery
in Europe and Japan, in a context of low inflationary pressures and with
a gradual reduction in unemployment," Mr. Cotis added.
Big Picture Should Boost Appliances
By virtually all accounts, the U.S. economy is poised for substantial
economic growth well into 2004, the consensus being growth of around
4 percent. The National Association of Business Economics' (NABE) November
2003 survey of 28 professional forecasters resulted in a call for 4.5-percent
real GDP growth in the U.S. in 2004, significantly better than the outlook
of 3.6-percent growth survey respondents had predicted in May 2003. More
to the point for appliance industry professionals, housing starts are
forecast to rise by 1.7 percent, compared to the 1.62-percent increase
forecast in May.
In addition, the NABE's latest study concluded that industrial production
is going to rise 4.5 percent in 2004 over 2003 levels, and the capacity
utilization rate in the U.S. manufacturing sector will rise to 76.4 percent,
compared to the 73.1 percent that survey respondents were calling for
a year earlier. Exports also will increase by 7.5 percent in 2004 over
2003, the NABE said.
All those factors likely will send shipments of appliances upward in
the U.S., as well. The Association of Home Appliance Manufacturers (AHAM)
predicted in May 2003 that shipments of major appliances - the traditional
AHAM 6 - ought to rise by 2.1 percent in 2004. The outlook from another
industry watcher is slightly less rosy: Core industry shipments in the
U.S. should rise 1.3 percent in 2004 to 42.41 million units from 41.87
million units in 2004, according to Evan Barrington of the Stevenson
Company, Louisville, KY, U.S., which provides economic figures to GE's
In addition, Mr. Barrington noted a steady rise in replacement demand
over the past 20 years. In 2004, demand for replacement appliances is
set to grow yet again, this coming year by 2.4 percent over 2003 to 24.96
million units. That trend has increased significantly the past decade,
stair-stepping year by year since 1994 from 20.6 million units to its
current level of 24.37 million units, an 18.3-percent jump.
On a more general level, the OECD expects business investments to shoot
up quickly in the coming year, but residential investment likely will
decline as long-term interest rates continue to rise.
"Nonetheless, the momentum from consumption and investment should keep
real GDP expanding at a rate of close to 4 percent even as federal purchases
decelerate in 2005 after the current round of spending increases has
run its course," the OECD reported in its Outlook No. 74 report, released
in late November 2003.
In a September 2003 report from Electro-Federation Canada, Craig Alexander,
assistant vice president and senior economist at TD Bank Financial Group,
called for U.S. GDP to leap by an average annual rate of 4.2 percent
in 2004, a number echoed by OECD.
Analysts are hardly the only ones forecasting sunnier skies, however.
"We're looking for big growth this year for a couple of reasons," said
Phil Uihlein, president of premium kitchen appliance maker U-Line Corp.,
Milwaukee, WI, U.S. "First of all, historically, of course, an election
year has been a pretty positive year. If I'm gonna bet one way, I'm gonna
bet with history and say, 'Hey an election year ought to be pretty strong,'
regardless of what the economic indicators are. And of course, they've
been pointing the right way, too."
Indeed, since 1857, there have been only five recessions in election
years, according to the National Bureau of Economic Research - 1860,
1920, 1948, 1960, and 1980.
Perhaps history is one reason why CEOs surveyed by The Business Roundtable
are calling for a strong growth year, as a consensus are planning to
gradually increase capital spending in 2004. (Business Roundtable members
include the CEOs of such appliance industry stalwarts as GE, Whirlpool,
Emerson Electric, and John Deere).
The Roundtable's study combined CEO sentiment into an index of sales,
capital spending, and employment figures to reach an index of 67.7, the
highest in the 4 years of the survey.
"This new ... index shows that America's largest companies believe
the U.S. economy is poised for progress," said Roundtable Chairman Phil
Condit, who recently resigned as CEO and chairman of The Boeing Co.
In addition, chief executives' confidence in the U.S. economy, which
rose in the second quarter of 2003 from the first, leapt even higher
in the third quarter, The Conference Board reported in October 2003.
The Conference Board's Measure of Business Confidence, which had improved
to 60 points in the second quarter, increased to 67 in the third (a reading
of more than 50 points reflects more positive than negative responses).
The Conference Board surveys about 100 CEOs in a variety of industries.
"The continued rise in CEO confidence is strong evidence of a turnaround
in corporate performance," said Lynn Franco, director of The Conference
Board's Consumer Research Center. "This is also indicated by an improvement
in capital spending plans."
The Conference Board reported that CEOs' opinions of current economic
conditions improved considerably, with the measure rising to 64 from
55 in the second quarter. The increase resulted from a sharp rise in
the percentage of CEOs stating that current economic conditions have
improved - 60 percent versus 35 percent in the second quarter, the organization
CEO expectations for the future are "very optimistic," the Conference
Board noted. Outlook for the economy improved to 73 from 66, and CEOs
industry expectations also rose to 66 from 60.
As for the badly needed business spending, about 12 percent of CEOs
reported that their companies capital spending plans increased since
January 2003, while 31 percent have scaled back their plans. In comparison,
11 percent of business leaders had increased their capital spending plans
at the same time in 2002, while 38 percent had made cuts.
Outlook for Canada
Canadian companies are hoping that U.S. fortunes give it the needed
kick to continue its recent run of prosperity. Bolstered by continued
consumer confidence and spending, Canada thrived through several major
economic impediments in 2003, including an epidemic of severe acute respiratory
syndrome (SARS) in the Toronto area, which put a damper on tourism and
put a hiccup into overall economic activity. In addition, the discovery
of mad cow disease in Alberta prompted other countries to restrict beef
imports from Canada, the OECD noted. During the summer, production was
held back by a power blackout in Ontario and by forest fires in British
Columbia. However, Canada's economy does appear poised for a healthy
Leading Canadian steel producer Dofasco Inc. reported to a group of
steel service center executives in October 2003 that it expects Canada's
real GDP to jump by 3.2 percent in 2004, while the U.S. economy rises
by 3.8 percent. And while Canadian exports were expected to have dropped
by 1.9 percent by the end of 2003 compared to the year before, they are
predicted to surge by 5.3 percent in 2004, Dofasco Vice President of
Commercial Brian Aranha reported to the group.
"Generally speaking, the economy in Canada is extremely strong, outperforming
that of the U.S. for the time being," said Ken Elsey, vice president
of Electro-Federation Canada. "We're optimistic that the apparent upturn
in the U.S. economy is going to stimulate the Canadian economy just that
In its assessment of the Canadian economy for 2004, the OECD said that "productivity
growth could be lower than projected" (and even lower in comparison with
the U.S.), so that the higher exchange rate squeezes the profit margins
of tradable-goods producers and as a result, the long-overdue recovery
in business investment may not come about.
"On the other hand, if exporters manage to take full advantage of the
ongoing cyclical upswing in world trade, the simultaneous acceleration
of exports and investment, combined with continuing robust consumer spending,
could cause the expansion to be even stronger."
Sales for all Canadian major appliances had increased by 5.3 percent
as of the third quarter with 3.5 million units sold, according to the
Canadian Appliance Manufacturers Association (CAMA). The trade group
predicted that major appliance sales for the remainder of 2003 would
continue at a strong pace, totaling 4,644,000 refrigerators, electric
and gas ranges, automatic washers, electric and gas dryers, dishwashers,
cooktops, and microwave ovens shipped.
The Canadian dollar's (CAD) dramatic rise against the U.S. dollar -
CAD 0.77 to the U.S. dollar as of this writing compared to less than
CAD 0.64 in January 2003 - boosts the buying power of Canadian consumers,
but also hinders exports by making them more expensive abroad.
"The manufacturing side of the business is declining, so that's a real
issue," Mr. Elsey said. "And some of that, I think in recent months,
is due to the rapid rise in the Canadian dollar. And in 2004, the value
of the Canadian dollar is going to continue to be an issue. But then
again, it may be a very positive one. The consumer will be the winner
as far as the buying power of the Canadian dollar is concerned."
Quick Housing Note
Some watching the U.S. economy have expressed disbelief over an impending
burst in the housing bubble. However, both Canadian and the U.S. housing
starts are set to take a dive in 2004 - 8 percent and 1 percent, respectively
- according to information by Dofasco.
The annual economic forecast issued by the Research Seminar in Quantitative
Economics at the University of Michigan (U of M) expects private construction
starts to slow in 2004 to 1.752 million from 1.807 million in 2003.
Do Americans have enough faith in the economy to propel the recovery?
As business spending looks to take over for consumer spending as the
primary benefactor of the overall economy, consumers are reporting more
confidence in the U.S. economy than they have for quite some time. The
Conference Board's Consumer Confidence Index registered 91.7 in November
2003, up a full 10 points for October 2003, and coincided with a sharp
increase in consumers' take on current business conditions.
Those saying that jobs are "hard to get" dropped from 33.7 percent
of the 5,000 U.S. households surveyed in October 2003 to 29.5 percent
in November 2003. In addition, 19.9 percent of people surveyed rated
current business conditions as "good," compared to 17.1 percent in October
2003, the Conference Board reported.
"Consumer confidence is now at its highest level since the fall of
2002," said Ms. Franco. On a down note, the Conference board also reported
that the percentage of people expecting more jobs to become available
in the next 6 months declined from 19.6 percent in October 2003 to 18.2
percent in November 2003.
Indeed, employment is the one catch to nearly everyone's published
forecast, as productivity gains made during and immediately after the
most recent recession have allowed companies to do more with fewer people.
However, economists at the RSQE noted that the job picture was looking
better all the time as 2003 rolled into 2004. August, September, and
October saw the U.S. economy create 286,000 new payroll jobs - 126,000
in October alone.
"Yes, job gains are for real," the RSQE said in its executive summary. "It
seems that businesses have about hit the limit of their ability to tease
more output out of fewer jobs."
U of M economists predicted a hiring boom of 800,000 jobs in the first
quarter of 2004, accompanied by a sharp rise in GDP of 5.6 percent on
an annualized basis, followed by an average increase of 4.5 percent over
the final 3 quarters of the year.
At the same time, the unemployment rate will drop to 5.1 percent by
the end of 2004, compared to 6 percent in November 2003. Much rosier
employment and unemployment numbers will contribute to a jump in real
disposable income next year, as well, to more than U.S. $7.558 trillion
- a 4.9-percent increase over the end of 2003.
Overall, the business outlook for manufacturing looks bright for 2004,
despite a continued job lag in U.S. manufacturing. The number of people
employed in U.S. manufacturing now stands at 14,542,000, according to
the BLS. However, employment in construction continued on an upward swing
in November 2003, and that industry has added 156,000 jobs since February
2003, the Government noted.
In fact, the U.S. stands to gain 2.1 million jobs total in 2004 while
unemployment drops to 5.4 percent, down significantly from November's
rate of 5.9 percent reported by the BLS. Add to that the magnificent
GDP surge seen at the latter part of 2003, and you have the makings of
a very real recovery.
"The economy starts the year 2004 with substantial momentum, propelled
by real GDP advancing at a 5.8-percent rate in the second half of 2003," said
U of M Economist Saul Hymans in late November 2003. "The pace of output
expansion remains vigorous next year, and the employment responds to
the strong economic growth."